Markson Company Had the Following Results of Operations for the Past

question 104

Multiple Choice

Markson Company had the following results of operations for the past year: $\begin{array}{|l|l|cc|} \hline \text { Sales \( (8,000 \) units at \( \$ 20) \) .................................... } & & \$160,000\\\hline \text {Variable manufacturing costs.............................. } &\$86,000\\\hline \text { Fixed manufacturing costs................................. } &15,000&\\ \hline\text { Variable selling and administrative expenses....... } &12,000\\\hline \text {Fixed selling and administrative expenses............ } & 20,000&(133,000) \\\hline \text { Operating income................................................ } & & \$27,000\\\hline\end{array}$
A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $14 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,600 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

• A) Increase by $3,500.
• B) Decrease by $5,650.
• C) Decrease by $1,600.
• D) Increase by $1,900.
• E) Decrease by $5,100.

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